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Cloud Accounting: where is it, what is it?

The three ages of Bookkeeping could reasonably be summarised as follows:

  1. The age of paper. Luca Paciolo, the 15th Century Cistercian Monk is widely credited as having invented double entry bookkeeping. The process of recording accounts in bound paper ledgers which gave bookkeeping its name didn't change a great deal for 500 years. A recent showing of the Muppet Christmas Carol featured numerous downtrodden bookkeepers working for the merciless Scrooge with quills and ink pots. At least by the latter part of the 20th Century, writing implements had improved.
  2. The age of the PC. The 1980's brought widespread availability of Personal Computers and with that came accounting packages. PCs evolved to office servers and individual workstations, but applications and data were still local to the users.
  3. The age of cloud applications. The 2000's brought the ubiquitous use of the internet. This enabled the development of the 'Cloud' and the availability of remote, server based software and data storage. Inevitably, this included accounting software. So, what is the 'Cloud'? 

A meteorological cloud is quite literally a nebulous, continually changing form; and so it is with the internet 'Cloud'. Service requests such as generating a monthly report might be run on any one of numerous servers located in a given data centre or quite possibly across one of a number of data centres located in widely differing geographical locations. This gives the service great resilience as planned or unplanned server outages do not interrupt the service availability.

Likewise, the data accessed by the service request (the subject matter of the report in our example) is also likely to be widely dispersed across storage in a data centre (or possibly multiple data centres). It is also likely that 'redundancy' is built-in namely multiple copies of the same data so that the data is inherently backed up. This further enhances the resilience of the service to the end user who does not need to know where the data is or where the report is being run; all that matters is the result is returned in a timely manner.

The paradigm shift in the way a user makes use of the accountancy service is that the end user does not need to physically install the software on one of his or her computing devices. All that is required is a web browser to access the software on the remote server where ever that might be. This means that the user can run their accountancy software from either a traditional desktop machine or from a mobile device such as a laptop, tablet or mobile phone. All that is needed is an internet connection. It also means that depending on the software licence package in place, multiple users may be given access to the same information from multiple devices and locations. This greatly increases the flexibility of how and when the accounting software is used.

Advantages of cloud accounting software:

  1. Your software is always up to date. The responsibility for maintaining the accountancy package falls on the service provider, not on the user.
  2. Your data is always backed up. Maintaining a robust backup regime for your data when using locally installed software is time consuming and requires discipline. With cloud accounting software, your data is always backed up for you.
  3. Cloud accounting software offers some great automation opportunities. 
    • The most obvious one is automated bank feeds which can save a great deal of time when recording transactions and in performing reconciliation.
    • Another huge opportunity for efficiency comes with the use of receipt and invoice processing software. These applications allow you to scan and upload receipts and invoices and then publish them to your accounting software. This can greatly reduce the need for manual entry of transactions and removes a significant source of errors.

A final benefit relates to the Government's Making Tax Digital for Business initiative which mandates the keeping of records digitally. In itself, this is not a benefit restricted solely to cloud accounting software. Desktop accounting solutions and even the use of spreadsheets will suffice in this regard but where cloud accounting solutions will have the edge is in the electronic submission of first VAT returns in 2019 and then tax records on a quarterly basis sometime from 2020 onward. Spreadsheets and desktop solutions will not provide this facility requiring some action on behalf of the end user. A more comprehensive post on the topic of Making Tax Digital for Business is planned in the future.

This concludes our brief review of cloud accounting software. The Bookkeeping and Accountancy profession is changing more quickly now than at any time in its history with Making Tax Digital and Open Banking rapidly becoming a reality. Cloud accounting is at the forefront of these changes and really is the only practical solution to addressing our rapidly evolving industry.